If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Sea's (NYSE:SE) returns on capital, so let's have a look.
What Is Return On Capital Employed (ROCE)?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Sea:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.016 = US$171m ÷ (US$19b - US$8.5b) (Based on the trailing twelve months to March 2024).
Thus, Sea has an ROCE of 1.6%. Ultimately, that's a low return and it under-performs the Entertainment industry average of 11%.
NYSE:SE Return on Capital Employed July 4th 2024
Above you can see how the current ROCE for Sea compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Sea .
What Does the ROCE Trend For Sea Tell Us?
Sea has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 1.6% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Sea is utilizing 321% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.
On a side note, Sea's current liabilities are still rather high at 44% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.
What We Can Learn From Sea's ROCE
Overall, Sea gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And with a respectable 98% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
Like most companies, Sea does come with some risks, and we've found 1 warning sign that you should be aware of.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com. This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
長期的に掛けて増加する株式を探す場合、どのような基本的なトレンドを探すべきでしょうか?一つの一般的なアプローチは、増え続ける資本利益 (ROCE) と資本利益の増加を併せ持つ企業を見つけることです。基本的にこれは、繰り返し成長できる要素を持つ企業であることを示す特徴です。しかし、Baoshan Iron&Steel(SHSE:600019)を調べた結果、現在のトレンドはマルチバッガーの模範には合わないと考えます。資本雇用における利回りが増加し、増加する資本雇用と共にある会社を見つけることは一般的な手法の1つです。これを見つけた場合、それは通常、素晴らしいビジネスモデルを持ち、多数の利益再投資機会がある企業であるということを意味します。Returns on capital employed (ROCE)とは何ですか? ROCEが何であるかわからない人のために、これは会社がビジネスで使用する資本から生み出す税引き前利益の量を測定するものです。MakeMyTripのこの計算の式は次のとおりです。Bumi Armada Berhadが前のROCEと前のパフォーマンスを比較した上図では、将来のROCEがより重要であるとされています。もし興味がある場合は、Bumi Armada Berhadの無料アナリストレポートをご覧いただけます。資本雇用のROI。これを見ると、測定することができれば、素晴らしいビジネスモデルと利益を再投資する多くの機会がある企業である可能性が高いです。ついでに、Sea (NYSE:SE)の資本利益に素晴らしい変化があったので、確認してみましょう。
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オーストラリアでは、moomooの投資商品及びサービスはMoomoo Securities Australia Limitedによって提供され、オーストラリア証券投資委員会(ASIC)の管理を受けております(AFSL No. 224663)。「金融サービスガイド」、「利用規約」、「プライバシーポリシー」などの詳細は、Moomoo Securities Australia Limitedのウェブサイトhttps://www.moomoo.com/auでご確認いただけます。